Moody’s cut three Cypriot covered bond programmes from two issuers yesterday (Thursday), following downgrades of the respective banks on 14 March, with Marfin Popular Bank covered bonds being cut to B1.

The rating agency lowered Bank of Cyprus (BoC) covered bonds backed by Greek residential mortgage loans from Baa3 to Ba3, and Marfin Popular Bank covered bonds backed by Greek mortgage loans and covered bonds backed by Cypriot residential mortgages from Ba3 to B1.

The corresponding issuers were downgraded two weeks ago, with BoC cut from Ba2 toB1 and Marfin from B2 to B3.

Moody’s has assigned a Timely Payment Indicator (TPI) of “very improbable”, which caps the ratings at Ba3 for issuers rated at a single-B level. It added that the TPI limited the rating at Ba3.

Marfin’s Greek and Cypriot programmes have been downgraded below the TPI cap. Marfin’s Greek covered bonds have a committed overcollateralisation of 16%, enabling it to achieve a B1 rating, while the Cypriot programme does not benefit from any overcollateralisation over the mandated 5%.

“Such overcollateralisation level limits the rating to B1 from an expected loss perspective,” said Moody’s. “Therefore, the covered bonds have been downgraded below the TPI cap.”

The rating agency noted that for the BoC cover pool the 5% overcollateralisation imposed by the Cypriot covered bond framework was in line with an expected loss of Ba3.

BoC’s covered bonds remain on review for downgrade while Moody’s awaits further information on the issuer’s plans for the programme.

The TPI Leeway for the programmes is limited, meaning any downgrade of the issuer may lead to a corresponding downgrade of the covered bonds, said Moody’s.